What is a Payout Annuity?
A payout annuity, sometimes called an immediate annuity, resembles a pension and in fact is like personal pension. You take a lump sum of money, money that probably you have over the years saved up for retirement, and give it to an insurance company. They in turn promise to pay you a guaranteed systematic payment to you for a guaranteed period of time, usually for life.
Creating a guaranteed income stream
A payout annuity might be right for you if you want peace of mind in retirement. It is designed to convert your savings into a guaranteed income stream for either:
- a set period of time (term certain annuity), or
- your entire life (life annuity)
For many people in Ontario, a payout annuity is an easy, worry-free answer to retirement income needs and is the best way to maximize guaranteed income.
How payout annuities work?
- You save for your retirement. You want the money you have saved to provide an income for as long as you live, or at least a certain period of time (like 10 or 20 years).
- So, you decide to buy a payout annuity from CSIA(we have access to the best rates).
- The insurance company calculates how much your income will receive be based on factors such as:
- long term interest rates, and
- how long the average person your age will live
- CSIA compares the different payment amounts from all competing insurance companies and picks the best one for you.
- The insurance company sends you money for the rest of your life (or the period you specify) much like a pension cheque during retirement life.
You can buy different types of annuities:
- Life annuity – provides income payments for as long as you live – usually with a guarantee that they’ll continue to a beneficiary in case you die earlier than expected.
- Joint and last survivor life annuity – income payments for as long as you and your spouse live – payments to the last survivor.
- Term certain annuity – gives a specified number of income payments. If you die before all the specified payments have been made, a death benefit is paid to a beneficiary.
How a payout annuity can fit into your financial plan
These are some reasons why you might want to buy a payout annuity, rather than a RRIF or LIF:
- You don’t want to risk outliving your savings (Longevity Risk)
- You want guaranteed payments, to pay ongoing fixed expenses
- You don’t want to make any more investment decisions – simplicity
Payout annuities provide an income for life or for a specific period of time. As part of a financial plan they can play a valuable role, providing a guaranteed income in your later years. You may have other income products contributing to your overall cash flow – payout annuities will give a predictable and guaranteed amount. Remember – a payout annuity does not have to be your entire nest egg. It can be the safety portion of your retirement income, guaranteeing you can pay for basic living expenses. This will allow you to be a bit more aggressive with you remaining investment portfolio, if you wish.
For more information about Payout Annuities in Ontario and a frank discussion of your circumstances: ~